Is the View from the Eurotower Purely European? - National Divergence and ECB Interest Rate Policy

15 Pages Posted: 28 Sep 2004

See all articles by Friedrich Heinemann

Friedrich Heinemann

ZEW – Leibniz Centre for European Economic Research; University of Heidelberg - Alfred Weber Institute for Economics

Felix P. Hüfner

Organization for Economic Co-Operation and Development (OECD)

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Abstract

The official view on ECB monetary policy claims that decisions are based on euro zone data and that diverging regional developments are disregarded. To test empirically whether regional developments have an impact on ECB decisions we develop a generalised monetary policy reaction function which allows for an influence of regional divergence. Reaction function estimations and a probit model of interest rate decisions for the first years of the euro area offer some first support for an impact of regional divergence. The results clarify that ignoring a potential national perspective may lead to biased estimates for the ECB reaction function.

Suggested Citation

Heinemann, Friedrich and Hüfner, Felix P., Is the View from the Eurotower Purely European? - National Divergence and ECB Interest Rate Policy. Available at SSRN: https://ssrn.com/abstract=591648

Friedrich Heinemann (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.zew.de

University of Heidelberg - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Felix P. Hüfner

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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